The global cryptocurrency market cap today is a little above $2 Trillion as of writing and the future of the digital economy depends on cross-chain interoperability, the ability for different blockchain networks to communicate seamlessly. This connection allows for asset transfers, data sharing and transactions between blockchains building a more efficient decentralized ecosystem.
Using chain abstraction and unifying trading mechanisms lets users trade, transfer and move assets across different blockchains effortlessly. It helps build a marketplace where users can buy, sell, and swap assets without being limited by the complexities of different blockchain networks. This removes barriers that often complicate cross-chain transactions, creating a smooth trading experience that is easier for users.
As the blockchain world sails more and more towards the idea of cross-chain interoperability, traders are the ones that benefit the most from an easy and quick interoperable system.
Traders get increased liquidity, more flexibility and access to a broader Decentralized finance market. By combining liquidity from multiple blockchains, users gain access to a greater variety of assets and trading opportunities, resulting in smoother transactions and more stable prices.
This article delves into the development and current state of cross-chain interoperability, with a case study on how Elys Network is contributing to its advancement.
Current State of Cross-chain Interoperability
The current state of cross-chain technology involves various protocols and solutions designed to connect separate blockchain networks. Key examples include cross-chain bridges and protocols like the Inter-Blockchain Communication (IBC) in the Cosmos ecosystem which creates standardized and secure communication between different blockchains. IBC acts as a trust-minimized bridge that mirrors the foundational internet protocol, TCP/IP. The protocol employs a similar principle of creating a standard protocol for data exchange, with an emphasis on security and verifiability which is crucial for blockchain operations.
These advancements are driven by key trends such as the development of Layer 0 solutions and the evolution of decentralized exchanges (DEXs), which play a crucial role in supporting cross-chain interoperability.
To know more about interoperability and how it is aiding blockchain networks, do read this article
How Are Decentralized Exchanges (DEXs) Evolving to Support Cross-Chain Interoperability?
Decentralized exchanges (DEXs) are changing to support cross-chain interoperability in several ways, including the creation of cross-chain DEXs that allow seamless asset trading across different blockchain networks.
These platforms use cross-chain technologies to enable direct asset swaps between chains, leading to more trading pairs and liquidity sources. Cross-chain DEXs also combine liquidity from multiple blockchains into shared pools, improving overall liquidity and making price discovery more efficient.
This creates a better user experience by providing a smoother interface for swapping assets between different blockchains.
Some examples of cross-chain DEX protocols include
THORSwap
1Sol
GravityDEX
Chainflip
SolanaX
Polkadex.
Challenges to Achieving Cross-Chain Interoperability
Despite technological progress, cross-chain communication has been facing many hurdles such as:
Security Risks
Security is a major concern for cross-chain DEXs, as these platforms often use complex systems like bridges and smart contracts to handle transactions. Vulnerabilities in these smart contracts or bridging protocols can be exploited by attackers, leading to significant financial losses for users.
With the increase in the number of blockchain networks and increased the need for interconnectivity there has been a simultaneous rise in the number of attacks on bridges. Read this article to understand how a ‘blockchain bridge’ exactly works and take precautions against such attacks.
Liquidity Fragmentation
While cross-chain DEXs aim to improve liquidity by connecting multiple blockchain ecosystems, liquidity can still be unevenly distributed. Users may find limited asset availability across different chains, resulting in slippage and less favorable trading conditions.
Complexity of Integration
Combining various blockchain networks into a single DEX requires navigating different protocols, consensus mechanisms, and governance models. This complexity can hinder both developers and users, as the lack of standardized interoperability protocols makes it difficult to switch between platforms.
Scalability Issues
As transaction volumes surge, maintaining performance and speed across multiple chains becomes increasingly complex. Solutions must be engineered to handle high throughput while ensuring security and decentralization are not sacrificed.
User Experience Challenges
Despite advancements in cross-chain DEX technology, the user experience can still be complicated. Users may need to use multiple interfaces and understand the details of different blockchain networks to complete trades, which can discourage less experienced users from using cross-chain DEXs. But fear not, Elys Network is here.
Elys Network is a master of cross-chain interoperability, which empowers users to leverage the full potential of decentralized finance (DeFi) across the entire blockchain ecosystem.
Master of Cross-Chain Interoperability
Elys Network is becoming a leader in the cross-chain interoperability space with majorly focusing on chain abstraction and universal liquidity. Elys Network is improving the decentralized finance (DeFi) landscape and changing how users trade assets across multiple blockchains.
Elys Network Bringing Blockchains Together with Cross-chain Capabilities
"Cross-chain interoperability isn't just a feature; it's the future of how every blockchain will operate. With Elys Network, we're turning that future into today's reality."
- CTO of Elys Network
Chain Abstraction and Universal Liquidity
The core of Elys Network’s strategy is chain abstraction, which simplifies interactions between different blockchain networks. This abstraction lets users interact with multiple blockchains through a single, easy-to-use interface, removing the complexities of cross-chain transactions.
Abstracting away the underlying technical details, Elys Network helps users focus on their trading strategies instead of the mechanics of blockchain interoperability.
Universal liquidity is another important part of Elys Network’s design. By consolidating liquidity from different blockchains, Elys Network gives users access to a wider range of assets and trading pairs. This not only improves liquidity but also reduces slippage during transactions, allowing users to execute trades more effectively. Combining liquidity across chains creates a more competitive trading environment that benefits everyone.
To gain a deeper understanding of it how Elys Network achieves Universal liquidity, read this article from experts at DroomDroom
Supports Unified Trading
Elys Network is designed to provide unified trading tools for the end-user. By offering a decentralized exchange (DEX) that allows cross-chain asset swaps, with built-in interoperability through the Inter-Blockchain Communication (IBC) protocol Elys Network lets users transfer assets seamlessly between different blockchains while allowing them to use different features such as:
Spot trading
Perpetual trading
Leverage LP
This is essential for creating a more connected DeFi ecosystem where users can easily access diverse financial products with a large set of assets.
Additionally, the Elys Network DEX uses an Automated Market Maker(AMM) model, allowing liquidity providers to provide liquidity to the pools to earn trading fees. This encourages participation and ensures there is enough liquidity for trading across chains.
On top of that, Elys Network offers a large panel of tools such as USDC, BTC, and SOL lending via staking and ELYS staking providing users with attractive passive yields while maintaining their liquidity within the Elys Network ecosystem.
What Makes Elys Network’s Approach Unique in the Cross-Chain Space?
Elys Network's cross-chain capabilities stand out in the Web3 space for several reasons right from its beautiful and easy-to-navigate dashboards to its innovative mining strategies.
Some of the other benefits are:
Universal Liquidity from Multiple Ecosystems
Image linking tokens from multiple blockchains, Solana, Ethereum, Bitcoin, etc.
One of the main challenges in cross-chain trading has been the uneven distribution of liquidity across different blockchains. Elys Network addresses this by combining liquidity from various ecosystems, including Bitcoin, Solana, Avalanche, and Ethereum Virtual Machine (EVM) chains, into its DEX. This combined liquidity gives users access to more assets, more trading pairs, and consistent liquidity across different chains, reducing slippage and enabling more efficient price discovery.
Simplified User Experience
Through its innovative use of chain and account abstraction, Elys Network simplifies the user experience for cross-chain interactions. Users can trade seamlessly using a unified account and balance, without needing to manage multiple wallets or interact directly with different blockchains. This streamlined approach makes cross-chain trading easier for more people.
Flexibility in Transaction Fees
Elys Network lets users pay transaction fees using any token, providing more flexibility and ease of use in managing cross-chain activities. This feature makes it easier for users to participate.
Innovative Staking and Liquidity Mining Strategies
Elys Network offers advanced Staking and Liquidity Mining solutions, including "One Click Staking" and leverage LPs, which provide attractive rewards for liquidity providers. These innovative strategies aim to maximize returns while minimizing risks.
However, it's important to note that leveraging liquidity positions while potentially increasing returns, also amplifies risks, thus possibly maximizing losses as well. This dual effect should be considered by users seeking to utilize leverage in their liquidity provision strategies.
Hybrid DEX Model for Diverse Trading Options
Elys Network's DEX utilizes a hybrid model, combining industry-standard Automated Market Maker (AMM) fixed-weight pools with an innovative Oracle-based dynamic weighted pool system.
Unlike traditional Automated Market Maker (AMM) models, Oracle-based dynamic weight pools are designed to mitigate impermanent loss, as they do not rely on automated rebalancing to maintain a constant token ratio.
Instead, these pools automatically adjust the volume of tokens in a pair based on a price index using Oracle's price feed. To ensure that the pool can always be rebalanced to the target ratio, a weighted recovery fee mechanism incentivizes traders to rebalance the pool. This offers substantial arbitrage opportunities and enhances security for the trading pairs.
This feature is especially valuable in volatile markets, providing an extra layer of protection since each token is always paired with USDC, effectively reducing volatility and risk while encouraging active arbitrage.
Flexible Transaction Fees and Reward Structures
Elys Network gives users flexibility in managing cross-chain activities by letting them pay transaction fees using any token. This makes it easier to use and reduces the need to manage multiple fee tokens across different chains.
Additionally, Elys Network's economic model encourages participation through a dual token system (ELYS and EDEN) and USDC rewards. Liquidity providers earn rewards in both USDC (from trading fees) and EDEN tokens, which aligns their interests with the platform's growth. This innovative reward system promotes liquidity provision and creates a thriving trading ecosystem.
Elys Network’s Collaborations in the Web3 World
Elys Network has formed several key partnerships to expand its decentralized finance (DeFi) capabilities.
Here are some of the key collaborations:
Lorenzo and Babylon
Deep integration within the Cosmos ecosystem expands Elys Network’s capabilities through partnerships with projects like Lorenzo and Babylon for native Bitcoin integration and liquid staking. Babylon focuses on improving the platform’s accessibility to Bitcoin, while Lorenzo contributes advanced liquid staking technology based on Babylon’s infrastructure. Both these partnerships are crucial in broadening the network's asset support and liquidity options.
Picasso Partnership
Elys Network’s partnership with Picasso allows for seamless trading of native Solana (SOL) tokens and integrates SOL liquid staking tokens (LST) into Elys Network’s web application. This partnership aims to unify liquidity across multiple blockchains, supporting a variety of DeFi tools through a user-friendly interface.
Particle Network Partnership
In June 2024, Elys Network announced a strategic partnership with Particle Network, focusing on cross-ecosystem accessibility and seamless trading. By using Particle Network’s account and chain abstraction technologies, Elys Network enables users to trade effortlessly across various blockchain ecosystems, such as EVM, Solana, Bitcoin, and Cosmos.
ATOM Accelerator DAO (AADAO)
A strategic alliance with the ATOM Accelerator DAO (AADAO) brings Elys Network into the Atom Economic Zone (AEZ). AADAO supports public goods and open-source projects within the Cosmos ecosystem, aligning with Elys Network’s goals of increasing the ATOM token’s utility and reach through strategic funding and community engagement.
CUDOS Partnership
In March 2024, Elys Network partnered with CUDOS, a leader in decentralized cloud computing. This collaboration aims to connect DeFi and decentralized physical infrastructure networks (DePIN). Using CUDOS Intercloud’s scalable, globally distributed GPU resources, the partnership improves Elys Network’s DeFi services, focusing on efficiency and scalability.
Other Cosmos Ecosystem Integrations
Collaborations with Axelar and Noble further improve cross-chain communication and stablecoin liquidity, respectively, creating a seamless and comprehensive DeFi platform. Axelar boosts the ability to securely transfer assets across different blockchains, increasing interoperability within the network. Meanwhile, Noble specializes in providing robust stablecoin support, which stabilizes the trading environment and enhances user confidence in transaction consistency.
Cosmos is a wide ecosystem of blockchain networks and understanding them can be confusing but the DroomDroom team has made it easier for us with this article
These partnerships are crucial for Elys Network's mission to connect traditional finance with decentralized finance, creating a more interconnected and efficient DeFi ecosystem in the future.